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Oracle, NetSuite Team Up

Oracle (ORCL) signed its third partnership this week after it teamed up with NetSuite (N) to deliver cloud-based human resource (“HR”) and financial solutions to mid-size businesses. Early this week, Oracle signed partnerships with Microsoft (MSFT) and Salesforce.com (CRM).

NetSuite offers enterprise resource planning (“ERP”) applications to mid-size businesses and it had so far been Oracle’s competitor in the ERP segment. However now, the partnership will see Oracle and NetSuite working together to extend services and products to small and mid-size businesses as well.

Report from Gartner suggests that global ERP spending is expected to reach $34.3 billion in 2017 from an estimated $26.03 billion in 2013, with a CAGR of 7% (2012 – 2017). Thus, the current partnership puts Oracle in a better position to take advantage of the growing trend in the ERP market.

NetSuite will benefit from Oracle’s portfolio of human capital management (“HCM”) applications that it had acquired through various acquisitions (PeopleSoft, RightNow and Taleo to name a few) over the years.

Thus, the partnership is mutually beneficial for both the companies going forward. However, the deal will particularly help Oracle, as the partnership not only removes a competitor, but also creates a cross-functional sales opportunity over the long term.

Market research firm IDC predicts that the cloud computing market will jump 130%, reaching $43.0 billion in 2016. Further, Gartner predicts that around $677.0 billion would be spent on cloud services within the 2013–2016 timeframe.

In such a scenario, the partnerships with Salesforce, Microsoft and now NetSuite are expected to provide a significant boost to Oracle’s cloud-computing endeavors. Moreover, the partnerships will significantly add to Oracle’s competitive strength against established players such as SAP and Amazon as well as against new entrants such as Workday.

Oracle is a late entrant in the cloud computing market and is relying on strategic partnerships and acquisitions to gain traction in the cloud computing market. However, we believe that the synergies from the partnerships will take some time to impact results.

In the meantime, Oracle needs to improve top-line growth in order to boost investor confidence in the near term. However, the continuing macroeconomic weakness and stiff competition will make execution difficult in the near term.